Italy's Salvini dismisses ratings downgrade, says outlook 'stable'

Matteo Salvini stands next to a sniper rifle during an event involving the state police SWAT team in Rome

Matteo Salvini stands next to a sniper rifle during an event involving the state police SWAT team in Rome Credit Remo Casilli REUTERS

The spread between yields on Italian and German bonds climbed to its highest level in nearly five years on Friday as a row between Rome and Brussels over the country's budget threatens to boil over.

Speaking to reporters in Rome, EU budget chief Pierre Moscovici said the EU Commission and many other EU nations are anxious by Italy's spending plans, which will see the country's budget deficit rise to 2.4 percent of GDP, three times higher than agreed upon by the previous government.

The EU commission chief said Italy have used all the elements of flexibility of EU rules, and that leaders don't want to add more room for manoeuvre for Italy. "The ball is now in the Italian authorities' court".

The government's free-spending plans prompted a credit downgrade by Moody's on Friday, which cut Italy's sovereign debt rating to one notch above junk status.

Conte said on arrival at the European Union summit that the budget plans boost welfare spending, cut the retirement age and hike the deficit, and acknowledged they were unlikely to please the commission.

'We have no understanding whatsoever for Italy's draft budget plan'.

Italy's opposition to cyber sanctions has contributed to a softening of the wording of the final joint summit document which in its last draft version says work "should be taken forward" on cyber defenses "through European Union restrictive measures".

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The decision cited "material weakening in Italy's fiscal strength, with the government targeting higher budget deficits for the coming years", as well as debt holding near the current 130 percent of GDP "rather than start trending down as previously expected".

He said he would visit EU Commission President Jean-Claude Juncker in the near future to discuss the issue.

Italy's premier, Giuseppe Conte, told reporters in Brussels that the budget did not need to be changed, just explained to the commission members. The 5-Star Movement opposes such a move, fearing possible money laundering.

Matteo Salvini, the leader of the League party, insists the language was always in the draft but said he was willing to give it up to preserve the ruling coalition.

"A harsh rebuke and the threat of further measures would likely boost the popularity of the populist coalition government", giving Italy's governing parties "an invaluable narrative to use during the campaign for the European elections in May", Piccoli said.

European Commissioner for Economic and Financial Affairs Pierre Moscovici arrives for a press conference, in Rome, Friday, Oct. 19, 2018. Moody's said the Italian government's budget plans are raising concern over the sustainability of its national debt. The response in the bond markets was to broaden the yield gap between Germany's and Italy's 10-year notes, which was the widest level seen in 5½ years.

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